EBRI Issue Brief

Issues in Mental Health Care Benefits: The Costs of Mental Health Parity

Feb 1, 1997 16  pages


  • This Issue Brief discusses issues in mental health care benefits. It describes the current state of employment-based mental health benefits and discusses studies and issues regarding full mental health parity. It also includes an analysis of the effect of full mental health parity on the uninsured population and the effects of the limited mental health parity provision contained in the VA-HUD appropriations bill. The final section discusses the implications of mental health parity for health plans and health insurers.
  • When employers began to provide health insurance benefits to their employees and their families, they extended coverage to include mental health benefits under the same terms as other health care services. Many employers continued to add mental health benefits through the 1970s and early 1980s until cost pressures required employers to re-examine all health care benefits that were offered. They quickly found that, while only a small proportion of the beneficiaries used mental health care services, the costs associated with this care were very high. As a result, employers placed limits on mental health benefits in an attempt to make the insurance risk more manageable.
  • The general strategies employers have used to manage their health care costs are cost sharing, utilization review, managed care, and the packaging of provider services. Employers' cost management strategies may be restricted, however. Five states have mental health parity laws, but three of the states—Rhode Island, Maine, and New Hampshire—apply these laws only to the seriously mentally ill. In addition, 31 states mandate that mental health benefits be provided. However, state mandates apply only to insured plans, not to self-insured employer plans, which are exempt from state regulation of health plans under the Employee Retirement Income Security Act of 1974 (ERISA).
  • A number of recent studies have examined the effect of mental health parity on health insurance premiums in a "typical"preferred provider organization and on the uninsured. In general, the studies concluded that mental health parity could increase health insurance premiums, decrease health insurance coverage for non-mental health related illnesses, and increase the number of uninsured individuals.
  • All studies of mental health parity, and mandated benefits in general, assume that there is a strong likelihood that increased health benefit costs would be passed along to workers in the form of higher cost sharing for health insurance, lower wage growth, or lower growth in other employee benefits.